Sales and Use Tax Annotations

Annotation 330.3130

(a) IN GENERAL

330.3130Lessor/Lessee Merger. Taxpayer A merged with Taxpayer B in a tax free statutory merger. Before the merger, Taxpayer B had been paying tax on its lease payments of various pieces of equipment leased from Taxpayer A. After the merger, the resulting corporation used the equipment internally. On some assets, the tax paid on the lease receipts exceeded the tax due on the purchase price method. On other assets, the sales tax due calculated and remitted using the rental payment method is less than the tax that will be due under the purchase price method.

The company asks whether it can calculate an aggregate tax due and then pay the net tax due for all equipment or if it can use the credit for tax previously paid under the rental payment method on one item of property to reduce the tax liability on the purchase price of another item of property.

Tax may not be reported by either of these proposed methods. Tax is calculated with respect to each transaction involving a sale of tangible personal property on an item by item basis. After the merger, the lessor and lessee became one entity, which means that the property that had been leased by the lessor to the lessee is thereafter used by the surviving corporation. The surviving corporation owes use tax measured by the purchase price of the property. It is irrelevant that on some of the assets the tax collected by Taxpayer A, which was collected and paid under the rentals payable method, exceeds the tax that would have been due under the purchase price method for calculating tax since such "excess" amounts are not overpayments and cannot be refunded. On those assets for which the measure of tax paid on the rentals is less than the tax due on the purchase price, the tax will be due on the difference. 1/13/93; 10/8/93.